Keep the people frightened
Of things they cannot know
Is the secret of the Tomb
If they knew what you and I know
They would know it is just men
Who rob them, cheat them, kill them
Then start it all again

- Orville X

Black Budget? What Black Budget?

At the time of the attack on the World Trade Center and the Pentagon in September 2001 according to the Government Accounting Office (GAO), Pentagon had incurred $3.4 trillion of “undocumentable transactions,” that is to say that there were $3.4 trillion worth of financial transactions for which there was no discernible purpose.

The day before the attack, Secretary of Defense Donald Rumsfeld warned that the lack of control over its budget was a greater danger to the national security of the United States than terrorism.

After the attacks, the government stopped publicly disclosing information about “undocumentable transactions”.

Blame the Bookkeeper

The problem is not restricted to the Pentagon but affects the entire spectrum of government agencies and departments from the Bureau of Indian Affairs to the Defense Department.

For a number of years the GAO has compiled a parallel set of books for the Federal Government called the Financial Report of the United States.

This report attempts to impose “Generally Accepted Accounting Principles” to the government’s financial reporting process in order to give a clearer picture of the government’s actual assets and liabilities and thereby enable better planning. Neither the Pentagon nor the Department of Housing and Urban Development (HUD), to name just two, have ever been able to pass a GAO audit on this basis.

Significantly, the government does not employ double entry bookkeeping in the preparation of its accounts.

This has been standard accounting practice since the seventeenth century, which classifies and tracks sources and uses of funds to create an accurate picture of a business (or public) enterprise.

Today the Pentagon utilises no accountable means of tracking money authorised by Congress from its initial authorisation to its use, say in developing a fighter plane.

Running a 21st century military machine using antique accounting methods is an anomalous situation with interesting implications, not least of which is that government agencies cannot, or will not, explain what they are doing with the money that is appropriated for their operations by Congress.

A similar state of affairs prevails at the Department of Housing and Urban Development (HUD).

It exists primarily, at least in law, to ensure that low income Americans have access to affordable housing, which HUD provides as well as both credit and credit insurance on a nationwide scale.

Yet HUD has never compiled information on its activities so that it or anyone else can see, by place, whether or not its activities in that place make money, lose money, or are simply irrelevant.

Conflict of Interests

Few Americans are probably aware that Lockheed Martin, builder of the F22 air superiority fighter, is also a major outside contractor supplying financial control and accounting systems to the Pentagon.

The Pentagon for its part is Lockheed Martin’s biggest customer.

This example is by no means unique.

Lockheed also has a subsidiary employed by HUD to administer housing in American cities, an unusual diversification for a corporation the majority of whose business is done with the military and intelligence agencies. [ii]

Similarly Dyncorp (recently acquired by Computer Sciences Corporation) is another contractor that, like Lockheed, derives almost all its revenue from government security and military contracts. It is also a contractor supplying information technology to a variety of government agencies including the Pentagon, HUD, the Securities and Exchange Commission (SEC) and the Department of Justice. At the Department of Justice it manages the case management software used by DOJ lawyers to manage investigations. [iii]

A prime example of overlapping interests is Herbert “Pug” Winokur. Not only was he on Dyncorp’s board of directors but he is also the Enron director in charge of that company’s risk management committee, and a long-standing board member of the Harvard Management Corporation, which invests in HUD projects.

AMS Inc., a computer software firm hired by HUD in 1996 to take over the management of its internal software for accounting and financial control, presided in two short years over an explosion in undocumentable transactions of nearly $76 billion. AMS violated fiduciary and control practices by installing its own equipment and software with no parallel runs against the legacy software and accounting system.

In those same two years, HUD’s management more than tripled the volume of loan and insurance business being pushed through the system. Anyone familiar with running such systems in a bank or an insurance company immediately understands that a decision such as this (for it had to be a decision) would result in huge losses. [iv]

Is this incompetence or design? Only the credulous would believe accident: the reward for Charles Rossotti, president of AMS, was to be named Internal Revenue Service (IRS) Commissioner at the Department of the Treasury, from which position he oversaw significant Treasury contract amendments to AMS.

He was a direct beneficiary of this as a special White House waiver permitted Rossotti and his wife to retain their AMS stock.

Government’s response to criticism

The reaction of many people to the sorts of facts related above is to dismiss them as no more than evidence of incompetence and accident.

The government does little to resist this sort of interpretation; on the contrary, it encourages it.

For example, in response to calls for an investigation of its financial control, the Pentagon countered with an offer to investigate credit card abuse. Complaints about the performance of outside contractors such as AMS have been answered by a government-wide contract award to IBM for the standardisation of IT systems and practices. IBM, in turn, has awarded subcontracts to AMS, Lockheed, Dyncorp, SAIC and Accenture (formerly spun out from Arthur Andersen of Enron fame).

It is these firms that have failed to provide systems that can pass a GAO audit.

This manoeuvring and the government’s justifications affront common sense and are unethical. As private sector firms, they have to pass audits before their own accounts can be approved and reported to shareholders. Yet they routinely fail to meet the same standard for the government.

Often the government blames the previous, outgoing administration. However, consider that the incoming Bush administration replaced all the senior Clinton political appointees except: the Comptroller of the Currency, John D. Hawke; IRS commissioner Charles Rossotti (formerly of AMS); Comptroller General David Walker (Formerly of Arthur Andersen [v] and CIA director George Tenet.

(see: http://www.npr.org/programs/npc/2001/010423.dwalker.html)

In short, the key positions necessary for the control of the federal credit, financial control, audit and intelligence.

This undisturbed transition from Democratic to Republican administrations represents a remarkable cross-party consensus, and highlights the real positions of power. With the exception of Rossotti, all these men are still in place in 2004. And Rossotti? He left the IRS to become a senior adviser to the Carlyle Group for information technology. A more richly symbolic and meaningful job move could scarcely be imagined.

Carlyle’s business is global venture venture capital, which is to say it invests in corporate acquisitions all over the world with a speciality in arms manufacturers and technology.

The large levels of undocumentable transactions at HUD and the Department of Defense inevitably inspire curiosity.

Where is the money associated with those transactions?

It is no great leap of imagination to wonder equally where the Carlyle Group raises the money with which to finance its acquisitions. [vi]

The trusts are dead. Long live the trusts

The cartelisation of the American economy was for all intents and purposes completed by the end of the first decade of the twentieth century. [vii]

In 1889, America’s leading banker JP Morgan held a meeting at his 5th Avenue mansion in New York. Its purpose was to reach a consensus whereby the owners of America’s railroads merged their competing interests. [viii]

This was no mere group of transportation executives agreeing to fix prices. The railroads also controlled the nation’s coalfields and oil supplies, and were tightly bound to the nation’s largest banks.

The creation of the Federal Reserve in 1914 completed this process of consolidation.

In effect, Congress ceded control of the US currency system and the federal credit to the banks, thereby officially recognizing the cartel.

This placed a relatively small number of men in a position to set prices across the economy with a degree of control heretofore unknown in US history.